Organic Farming Freedom Farm

Commerce 492 Business Plan Rosalind Ball Heather Hack Murray Nelson Myles Thorpe

Mission statement
Goal: To build a viable organic farm business in ten years. To establish the first three years of organic farming practice while selling on the conventional market until OCIA certification.

To have all land in organic production within four years and sell on the organic market by the fourth year.

Mission statement
To increase cash flow over the next seven years through organic practice while selling on the organic market.

To replace and improve farm power machinery in ten years.

To maintain soil fertility while maintaining yield productivity and year to year stability.

Outline
Industry overview Operations Human Resources Marketing Financial Feasibility Analysis

Industry Overview
$20 billion US Majority of industry - Europe, USA and Japan Increasing health and environmental concerns Aggressive promotion Supportive government policies

Canada...
$1 billion in annual sales Annual growth of 20% per year Predicted increase of 5 to 10% of global market by 2010 Net exporter of bulk organic grains and oilseeds Significant production of raw products - 80% store products imported from USA

Saskatchewan...
Over 1000 certified producers 70% of western Canada producers $30 million industry 30 organic processors
flour, flax oil, oatmeal, bread, cereal

About Kipling:
LLD SE 5-8-3 W2 Precipitation (427mm) Temperature (GDD) 1600 > 5 C Soil Classification Black soil Frost Free Days 120

KIPLING

Kipling contd
Southeast transportation committee Transportation: Near Trans Canada Highway # 1

Capital Outlay
Land (1680 acres) Buildings: Shop Grain Storage Powered Equipment Non-Powered Equipment Total Capital Outlay 2002 432,177 26,000 136,000 29,350 623,527 2005 2006 2008 50,000 50,000 2009 15,000 15,000 2011 50,000 50,000

30,000 30,000

34,239 15,000 49,239

Challenges rotation choice

OCIA Organic Crop Improvement association
3 years to get organic certification Crop rotation & tillage for weed control, fertility DIVERSITY

Seed, fertilizer and variable machinery costs Are the highest yearly inputs

Rotation order
Block Year
1 2 3 4 5 6 7

Oat+A Canola Flax Flax Wheat Pea Wheat

Alfalfa Fallow Flax

Fallow Flax C/flax Barley Barley Pea Wheat Oat+A A

Barley Pea Wheat Oat+A A

Pea Wheat Oat+A A Fallow

Wheat Oat+A A Fallow C/flax Barley Pea

Canola Pea Pea Wheat Oat+A Wheat Oat+A A

Fallow C/flax Barley

Fallow C/flax

Human Resources
Sole Proprietorship

Owner/Operator

farm equipment and mechanical expertise proven interest in organic food production management/decision making skills bookkeeping - overseeing paperwork - accreditation
Salary: $40,000 in year 1, increasing to $50,000 by year 10

Human Resources cont..

Position #2 - Seasonal Labor (seedingharvest)
knowledge of farm equipment mechanical knowledge Wages: $9.52/hour

Product/Service Features
Product within OCIA regulations
Certified organic

Beneficial Products Serving the buyers needs

Competition
Over 1000 certified producers in Sask.
Beneficial globally? Detrimental locally?

Competition minimal due to infancy of industry

Distribution/Pricing
Price Taker
price depends on world markets and demand price dependent on quality and volume research different buyers frequently

Distribution cost responsibility of buyer

Strengths
Educated farmer/businessman Knowledgeable hired help Production diversity Producing a Healthy product Location- soil, climate, moisture

Weaknesses
Marketing
getting the best price at the right time Price Taker

Marketing unfinished product Starting from scratch

inexperience in the agriculture industry cost: significant capital needed

Limited database on production practices and outcomes

Opportunities
Organic industry 15-25%/year Emerging markets Australia, New Zealand Organic processors expanding Premiums for production OCIA most recognized high visibility products Low land cost and pest populations in Saskatchewan Health and environmental problems related to pesticides decreased

Threats
Infancy of the industry Expansion of producers in Sask. - Opportunity? Government regulation Transportation (exporting - union strikes) GMO crops (canola, wheat, etc.) At the mercy of nature Mining of the soil- minimal nutrient amendment Lack of global quality standardization
NOP - National Organic Program

Processors/Customers
Popowich Milling, Yorkton
Oat processing (oatmeal, flour, etc)

Bioriginal Food & Science Corp, Melville

edible oils and flax seed

CSP Foods - bakery mixes Proven Organics, Gravelbourg

whole and split peas, flax and hulled barley

Customers Summary
Grower controls decision to sell Expect competition from other growers, prefer broad base of supply QUALITY and price Market is growing, buyers have sourcing problems

Financial Plan

Total Revenue Total Expenses Net Income

2002 155,341 139,527 15,814

2004 124,467 103,489 20,978

2005 296,805 113,855 182,950

2006 302,741 113,263 189,478

2010 327,697 109,160 218,537

2011 334,251 107,617 226,634

Financial Analysis
400 350

Dollars (thousands)

300 250 200 150 100 50 0 -50 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Total Revenue Total Expenses Net Income

IRR and NPV

Base Case
Net Present Value of Equity Investment Internal Rate of Return on Equity Investment (72,049) 12.2%

Without 2% growth in price:

Net Present Value of Equity Investment Internal Rate of Return on Equity Investment (114,221) 10.4%

Yield and Price Fluctuations

60% -100% -100% -100% -4.3% 1.7% 6.7% Yield (% of Expected Average) 75% 90% 100% 110% -100% -100% -100% -100% -100% -100% -4.3% -1.2% -4.3% 1.7% 5.1% 8.2% 3.0% 8.9% 12.2% 15.2% 8.9% 14.6% 17.9% 20.8% 13.8% 19.4% 22.6% 25.5%

40% 60% 80% 100% 120% 140%

125% -10 3.0 12.2 19.2 24.7 29.3

Percent of Expected Organic Price

Conclusion and Summary

Any Questions?